“The downgrade and negative outlook reflect a potential increase in defaults due to very high leverage and approaching debt maturity in 2023,” Moody’s said in a rating note. “While multimedia, ticket and license revenues are beginning to recover rapidly from the pandemic, the cost of contracted multimedia rights is also rising rapidly and will have a negative impact on FY 2022.”
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The rating agency dropped the rating of the Learfield family of companies one notch to Caa2, which is in the lower half of the “non-investment grade” level on the Moody’s scale. A rating in the Caa range is defined by the agency as “judged to be in poor standing and subject to very high credit risk.” Learfield’s first lien credit facility has been downgraded one level to Caa1, while the rating for its second-lien loan—which means it’s further back in legal order—has been downgraded to Ca, from Caa3. The business outlook was also revised from stable to negative.
“Learfield experienced record revenue growth,” the company said in an emailed statement. “The transformative, integrated business model between events, licensing, fan connectivity and brand promotion provides our partner institutions with unmatched opportunities in the college landscape. Moody’s report reflects the business impact of the global pandemic as well as significant revenue recovery. Learfield’s continued investment in infrastructure data, branded content, direct-to-fan platforms and the company’s NIL development position for continued growth, sustainability and the ability to meet partner needs.
The company added that it provided updates to credit agencies last week in line with standard business practices.
Learfield has several positives, according to Moody’s, including a prominent position in college athletics, a strong college fan base and potential for media rights growth in college compared to pro sports. The cost-saving measures planned by the management and the post-pandemic recovery in multimedia are also positive, the agency said.
However, Learfield was saddled with a heavy level of debt; agency said the business carried out debt that is more than 30 times earnings before interest, taxes, depreciation and amortization (EBITDA) for the year ended June 30. (The EBITDA figure itself is not disclosed by Moody’s.) At least. the new annual report of part-owner Endeavor Group, it disclosed that Learfield net loss of $164.3 million in calendar 2021 on revenue of $1.09 billion. From 2019 to 2021, Learfield posted a net loss $1.8 billion.
In addition to the high debt ratio, the business has $183 million due in September 2023 with two loans, with additional loans in December 2023 and December 2024, according to Moody’s. A rising interest rate environment presents a risk that Learfield may not be able to repay some or all of its debt at favorable rates, according to the rating note. Paying off debt as scheduled requires diverting cash from other activities in a competitive business environment.
“Despite Learfield’s strong position in the industry, competition for collegiate sports rights will remain high and colleges will continue to seek increased fees for their media rights,” Moody’s.
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